Will Gold Price Increase After Its Recent Fall?

Will Gold Price Increase After Its Recent Fall?

Gold’s dramatic price movements in recent weeks have left many investors questioning its future direction. After reaching a historic high of $5,594.8 per ounce on January 29, 2026, gold faced a sharp 9% drop in a single day. The price briefly dipped below $4,700 per ounce, marking its largest daily decline since 1980.

However, just as quickly as it fell, the precious metal rebounded, climbing by 5.4%, breaking through the $5,000 mark once again. With gold now trading well below its peak, many are asking: will gold price increase again in the coming months?

The answer isn’t clear-cut, but there are strong arguments for gold’s continued rise despite the volatility. The key drivers of gold’s price, including macroeconomic factors, geopolitical uncertainty, and central bank demand, remain in place, supporting a positive outlook. However, the path forward will likely involve heightened volatility and market fluctuations.

What Triggered Gold’s Recent Fall?

The sudden drop in gold’s price was driven by a combination of overextension, policy changes, and speculative momentum. Let’s break down the factors that contributed to the steep decline.

1. Policy Shifts and a Stronger Dollar

Gold’s rise in late 2025 and early 2026 was largely driven by the expectation of a dovish Federal Reserve. However, the nomination of Kevin Warsh as the next Federal Reserve Chairman by President Trump caused a shift in market expectations.

Investors started pricing in a tighter monetary policy, which strengthened the US dollar and increased interest rate expectations. Both of these negatively impact gold.

2. Profit-Taking After a Rapid Surge

Gold’s price had surged to record highs, and when the rally became unsustainable, profit-taking set in. After such a parabolic move, the market is often left “crowded,” with many investors trying to exit at the same time. When a correction finally came, it was swift and deep.

3. Margin Calls and Forced Selling

Another factor exacerbating the drop was forced liquidation. As gold prices surged, many traders took on leveraged positions. When the price dropped sharply, margin calls were triggered, leading to forced selling. This cascade of sell orders pushed the price down further. According to TD Securities, the forced sales in precious metals “likely ran their course,” and the market should stabilise as volatility decreases.

Gold’s Rebound: What Drove the Recovery?

While the drop was steep, the subsequent rebound was equally impressive. Gold quickly regained much of its lost value, breaking above the $5,000 level. Here’s why that happened:

1. Bargain-Hunting and Investor Sentiment

After the sharp drop, many investors saw an opportunity to buy gold at a discounted price. As the risk-on sentiment returned to the market, investors quickly jumped in, pushing the price back up. Gold rose by 2.1% in early trading on February 3, 2026, after a 6% gain the day before.

2. A Softer Dollar and Macroeconomic Risk

Gold tends to do well when the US dollar weakens, as it becomes cheaper for buyers holding other currencies. A weaker dollar during the recovery phase allowed gold to climb, as it typically drives demand for the yellow metal.

Additionally, geopolitical risk and economic uncertainty continued to drive interest in gold as a safe haven.

3. Central Bank and Institutional Demand

Despite the recent volatility, central bank demand for gold remains strong. The World Gold Council reports that central banks bought 863 tonnes of gold in 2025, a historically high figure. This structural demand provides a solid base for gold prices, as central banks view gold as a hedge against inflation and currency risk.

Will Gold Price Increase in the Coming Months?

Looking ahead, the outlook for gold is positive but comes with some risks and uncertainty. Several factors support a continued upward trajectory for gold, but investors should be prepared for price swings and market volatility.

The Bullish Case: Why Gold Could Rise

There are several strong reasons why gold might continue to increase in the coming months:

1. Continued Central Bank Demand

Central banks are not slowing down their purchases of gold. According to the World Gold Council, 95% of central banks expect their gold reserves to increase over the next year. This demand provides a solid floor for the price of gold, supporting its long-term outlook.

2. Investment Demand and ETF Inflows

Gold-backed ETFs saw record inflows of $89 billion in 2025, indicating continued investor interest in gold. If geopolitical risks and inflation concerns persist, these flows are likely to continue, driving gold higher.

3. Geopolitical and Economic Risk

Gold has historically performed well during periods of economic uncertainty and geopolitical instability. With concerns over inflation, global debt levels, and regional instability, gold remains a safe haven for investors seeking to protect their portfolios from market turmoil.

4. Bullish Price Predictions

Many major financial institutions remain bullish on gold. Deutsche Bank has reaffirmed its forecast, predicting that gold could rally to $6,000 an ounce by the end of 2026.

The Bearish Case: What Could Stop Gold From Rising?

Despite the positive outlook, there are some risks that could limit gold’s upside in the near term:

1. Stronger Dollar and Higher Yields

If the US economy strengthens and the Federal Reserve signals that interest rates will remain high for an extended period, the dollar could strengthen, and yields could rise, both of which would weigh on gold. Higher rates make gold less attractive relative to yield-bearing assets.

2. Reflation or Risk-On Sentiment

If the global economy enters a period of economic reflation or a risk-on environment, where investors shift their focus to equities and higher-risk assets, gold could face downward pressure. In such a scenario, investors may pull back from gold in favor of riskier investments that offer higher returns.

3. Volatility and Market Uncertainty

As we’ve seen in the last few weeks, gold can experience extreme volatility, and forced sales can trigger significant drops. Although volatility can present buying opportunities, it may also deter short-term retail investors from jumping back into the market until things stabilise.

What to Watch Over the Coming Months

If you’re wondering whether gold will continue to rise, here are the key factors to watch in the coming months:

1. Dollar strength or weakness: A weaker dollar generally benefits gold.
2. Interest rate expectations: Falling rates or the expectation of rate cuts would be bullish for gold.
3. ETF and investment flows: Continued inflows into gold-backed ETFs would support higher prices.
4. Central bank purchases: Central banks’ buying activity is crucial for supporting gold’s long-term outlook.
5. Geopolitical and economic risk: Gold tends to rise when global risks increase.
6. Leverage and margin conditions: Volatility driven by margin calls could create further fluctuations.

Will Gold Price Increase Now?

Gold’s recent drop and rebound have illustrated the asset’s inherent volatility, but the underlying demand drivers for gold such as central bank purchases, investment demand, and geopolitical risks remain strong.

The most realistic expectation is that gold will continue to rise in the coming months, but not without price swings and volatility along the way.

If you’re considering investing in gold, it’s important to stay informed about the key drivers and be prepared for potential market fluctuations. As the macroeconomic landscape evolves, gold will likely continue to serve as a safe haven for investors seeking protection from inflation and economic uncertainty.

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